Average loan life now around 3 years: Sherlok

Ahead of the release of its Third-Party Home Loan Insights report, the founder of the fintech, Adam Grocke, revealed that the median ‘survival time’ of a home loan has dropped to 37 months. 

This is down from 43 months prior to the pandemic (2019) and a drop of 13 months (or just over a year) in a decade.

Speaking to The Adviser about the drop in the average length of a home loan, Mr Grocke said sharp refinancing rates and cashback offers had contributed to the falling lifespan of a loan.

“There’s no doubt that the refi cashback incentive is sparking people to move, to switch lenders. So that’s a significant event that hasn’t been around forever. It’s quite noticeable in the data that there’s an uplift in refinance activity and people switching as a result of that,” he said.

“Moreover, for such a long period of time, rates were reducing … For 10 years when rates were going down, people didn’t really need to do that much. So what we’re seeing in the most recent data is that the life of a loan is getting much shorter now because people are actually doing something about it to save money.”

Mr Grocke added that a greater proportion of brokers were sending their clients to non-major banks and non-banks in recent years, which had resulted in lenders coming out with “really aggressive pricing strategies to the broker channel”.

The Sherlok data also showed that younger borrowers are much more likely to change lender than older ones. For example, the ‘survival’ life of a loan was much smaller with a borrower who was aged 18–29, whereas older borrowers, particularly those over the age of 60, were more likely to stay with their existing loan/lender.

Mr Grocke explained that older borrowers may often find themselves “handcuffed” to their lender due to their age (as typically lenders don’t tend to offer longer loan terms to those nearing retirement), while younger borrowers are more likely to have lower savings and built-up wealth and therefore are much more rate-driven. 

“Our key focus with providing this data, and the upcoming report, is to help brokers keep clients for life. That’s our mission at heart,” he said.

“The current data set isn’t showing us whether brokers are more active in refinancing or repricing existing customers yet — though we expect that will be the case in the next report — but they’re very active in marketing cashback offers to new customers, for example. 

“So I think what we’re going to see when the data comes out in the next 12–18 months is that there will be this separation between top brokers who have shifted to focus on reconnecting with their existing clients and ensuring they can reprice, refinance and refocus on their back book.

“We’re providing this data so brokers know they need to focus on retention and talk to their clients about repricing and refinancing because otherwise they’re going to disappear and churn will increase. If you aren’t speaking to your existing clients, someone else is.

“Brokers already know this but it’s often not until you see the data, the empirical evidence, that they change their behaviours and use those insights and recommendations to do something about it. For example, if they’ve got lots of younger borrowers or first home buyers, they might want to focus on them, as they’re more active in market at the moment. 

“The data is also useful for lenders, as it is showing us that if a client gets repriced then the life of the loan is significantly extended (if that reprice is successful and it’s a competitive rate). So they don’t have to be the cheapest in the market, but if they’re fair and reasonable then the life of the loan could be extended by one or two years more.”

The Sherlok insights come as analysis from broker platform BrokerEngine has shown that the average time for brokers to write a loan has increased in recent years as a result of additional administration and compliance.

[Related: Average time to write a loan increases: BrokerEngine]